New-Home Sales Get a Boost

More people bought new homes last month with new-home sales rising 7.3 percent, the Commerce Department reported on Tuesday. It was the second straight month that new-home sales were up.

New-home sales rose to a seasonally adjusted annual rate of 323,000 homes in April, which is its highest level since December.

However, overall sales for the year still remain well below what economists consider a 700,000 healthy pace for the new-home sector.

The new-home market for the last five years has faced declines. It continues to battle against a glut of foreclosures across the country at ultra-low prices that have made competing a challenge.

Builders are keeping inventories low: A record low of 175,000 new homes were available for sale last month.

Meanwhile, the median price of a new home rose more than 2 percent in April, compared to the previous month, to $217,900. New-home prices are more than 30 percent higher than the median price of existing homes.

Source: “New-home Sales Up 7.3 Pct. in April After Sluggish Start to Year,” The Associated Press (May 24, 2011) and “U.S. April New Home Sales at 4-Month High,” Reuters News (May 24, 2011); Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

Market Comment for Week of May 23, 2011…

MARKET COMMENT   Mortgage bond prices rose last week pushing mortgage interest rates slightly lower. We started the week positive while stocks struggled. Housing starts, industrial production, and capacity use data all were weaker than expected which helped rates improve Tuesday. Lower than expected weekly jobless claims caused rates to initially spike higher Thursday morning. Fortunately the leading economics indicators data and decent 10Y TIPS auction helped stem that weakness. Mortgage bonds ended the week better by about 1/8 to 1/4 of a discount point.

The PCE core inflation data will be one of the more significant releases this week. Any indication of inflation would not bode well for lower rates.

LOOKING AHEAD

• New Home Sales; May 24; Consensus Estimate 288k; Important. An indication of economic strength and credit demand. A decrease may lead to lower rates.
• 2-year Treasury Note Auction; May 24; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Durable Goods Orders; May 25; Consensus Estimate Up 3.2%; Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
• 5-year Treasury Note Auction; May 25; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Q1 Revised GDP; May 26; Consensus Estimate Up 1.8%; Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
• Weekly Jobless Claims; May 26; Consensus Estimate 415k; Important. An indication of employment. Higher claims may result in lower rates.
• 7-year Treasury Note Auction; May 26; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Personal Income and Outlays; May 27; Consensus Estimate Up 0.3%, Up 0.4%; Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
• PCE Core Inflation; May 27; Consensus Estimate Up 0.1%; Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve.
• U of Michigan Consumer Sentiment; May 27; Consensus Estimate 72; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

PCE The US Department of Commerce’s Bureau of Economic Analysis releases the core PCE price index. The report provides the average increase in costs for personal consumption expenditures excluding food and energy. As of July 2009 the figure now includes food services in the figure.

The report is significant in that the Fed uses the PCE in determining inflation as opposed to the prior use of the consumer price index. The reports vary in that the CPI in that the PCE includes the price of spending for and on behalf of households. This includes health care spending paid for a household by a business. The CPI only reflects out of pocket expenses paid directly by consumers.

Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

April Existing-Home Sales Ease

Existing-home sales slipped  in April, although the market has managed six gains in the past nine months,  according to the National Association of REALTORS®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums, and co-ops, eased 0.8 percent to a seasonally adjusted annual rate of 5.05 million in April from a downwardly revised 5.09 million in March, and are 12.9 percent below a 5.80 million pace in April 2010; sales surged in April and May of 2010 in response to the home buyer tax credit.

Lawrence Yun, NAR chief economist, said the market is underperforming. “Given the great affordability conditions, job creation, and pent-up demand, home sales should be stronger,” he said. “Although existing-home sales are expected to trend up unevenly through next year, unnecessarily tight credit is continuing to restrain the market, along with a steady level of low appraisals that result in contract cancellations.”

Obstacles to Recovery

A parallel NAR practitioner survey shows 11 percent of REALTORS® report a contract was cancelled in April from an appraisal coming in below the price negotiated between a buyer and seller, 10 percent had a contract delayed, and 14 percent said a contract was renegotiated to a lower sales price as a result of a low appraisal.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.84 percent in April, unchanged from March; the rate was 5.10 percent in April 2010.

“Although sales are clearly up from the cyclical lows of last summer, home sales are being held back 15 to 20 percent due to the very restrictive loan underwriting standards,” Yun said.

All-cash transactions stood at 31 percent in April, down from a record level of 35 percent in March; they were 26 percent in March 2010. Investors account for the bulk of cash purchases.

NAR President Ron Phipps said the lending community needs to return to sensible standards. “We want to ensure that qualified buyers will be able to own their property on a sustained basis from a sound credit evaluation, but banks needn’t be so stingy as to only lend to those with the highest credit scores,” he said.

“Very high shares of cash purchases, and high credit score requirements, have led to historically low default rates among home buyers over the past two years. This trend implies a gulf is opening between those who can and cannot have access to the American dream of home ownership,” Phipps said. “At the same time, existing guidelines from Freddie Mac and Fannie Mae must be fully implemented so all appraisals are done by valuators with local expertise.”

Price Stability

The national median existing-home price for all housing types was $163,700 in April, which is 5.0 percent below April 2010. Distressed homes — typically sold at a discount of about 20 percent — accounted for 37 percent of sales in April, down from 40 percent in March. They were 33 percent in April 2010.

“Home values, despite month-to-month volatility, have been remarkably stable in the range of $160,000 to $170,000 for the past three years,” Yun said. “Stable home prices in turn will steadily lower loan default rates, including strategic defaults.”

Total housing inventory at the end of April increased 9.9 percent to 3.87 million existing homes available for sale, which represents a 9.2-month supply at the current sales pace, up from an 8.3-month supply in March.

First-time buyers purchased 36 percent of homes in April, up from 33 percent in March; they were 49 percent in April 2010 when the tax credit was in place. Investors slipped to 20 percent in April from 22 percent of purchase activity in March; they were 15 percent in April 2010. The balance of sales was to repeat buyers, which were 44 percent in April.

Single-family home sales slipped 0.5 percent to a seasonally adjusted annual rate of 4.42 million in April from 4.44 million in March, and are 12.6 percent below the 5.06 million pace in April 2010. The median existing single-family home price was $163,200 in April, which is 5.4 percent below a year ago.

Existing condominium and co-op sales fell 3.1 percent to a seasonally adjusted annual rate of 630,000 in April from 650,000 in March, and are 15.0 percent below the 741,000-unit level one year ago. The median existing condo price was $167,300 in April, down 2.3 percent from April 2010.

Regional Performance

Existing-home sales in the Northeast fell 7.5 percent to an annual pace of 740,000 in April and are 32.1 percent below a year-ago surge. The median price in the Northeast was $225,400, which is 7.3 percent below April 2010.

Existing-home sales in the Midwestrose 5.7 percent in April to a level of 1.12 million but are 16.4 percent below a cyclical peak in April 2010. The median
price in the Midwest was $133,200, down 5.1 percent from a year ago.

In the South, existing-home sales declined 4.1 percent to an annual pace of 1.95 million in April and are 9.3 percent below a year ago. The median price in the South was $142,800, which is 4.1 percent lower than April 2010.

Existing-home sales in the West slipped 1.6 percent to an annual level of 1.24 million in April and are 0.8 percent below April 2010. The median price in the West was $203,400, down 6.1 percent from a year ago.

Source: NAR; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

Market Comment for Week of May 16, 2011…

MARKET COMMENT   Mortgage bond prices rose last week pushing mortgage interest rates slightly lower. We started the week positive when it was announced Greek’s debt rating was downgraded. Retails sales were slightly lower than expected. Inflation readings on the producer side were slightly higher than expected as prices rose 0.8% and the core rose 0.3%. Consumer prices rose 0.4% and the core rate, which excludes the volatile food and energy costs, rose 0.2%. The core value was higher than expected mirroring PPI earlier in the week. Unfortunately the 30-year auction results showed poor demand that caused the bond market to fall and rates to rise Thursday afternoon. Mortgage bonds ended the week better by about 1/4 of a discount point. 

LOOKING AHEAD 

  • Housing Starts; May 17; Consensus Estimate 529K; Important. A measure of housing sector strength. Weakness may lead to lower rates.
  • Industrial Production; May 17; Consensus Estimate +0.6%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
  • Capacity Utilization; May 17; Consensus Estimate 76.2; Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
  • Weekly Jobless Claims; May 19; Consensus Estimate 440k; Important. An indication of employment. Higher claims may result in lower rates.
  • Existing Home Sales; May 19; Consensus Estimate 5.10M; Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
  • Philadelphia Fed Survey; May 19; Consensus Estimate 19.2; Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
  • Leading Economic Indicators; May 19; Consensus Estimate +0.5%; Important. An indication of future economic activity. Weakness may lead to lower rates.
  • 10-year TIPS Treasury Note Auction; May 19; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

A SURE THING   While nobody can accurately predict what the future holds for mortgage interest rates, the fact remains that they are historically low. It is difficult to justify the risk in floating when the excellent rates currently available are a sure thing. 

Timing is one of the most important factors in success. Unfortunately, knowing the perfect time to lock in a loan is impossible until after the fact. While analysts constantly try to predict the future, the bottom line is they continually fall short in terms of accuracy. Recent history is a testament to this. At the end of last year analysts overwhelming predicted low rates for the months ahead. The first quarter of this year saw rates generally increase. Fortunately there has been a recent reprieve but things still remain volatile. The movements over the past 5 months show the challenge of making predictions. 

The good news is that the current low interest rates are here now. It is possible for rates to improve. However, if rates move higher, they are likely to spike fast and furiously with inflation fears looming. A cautious approach is necessary to protect against market volatility. 

Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services, a proud member of Pilkerton Realtors, located in Nashville, Tennessee

Existing-Home Sales Rise in Most States

Existing-home sales continued to recover in the first quarter with gains in 49 states and the District of Columbia, while 22 percent of metropolitan areas saw prices rise from a year ago, according to the latest survey by the NATIONAL ASSOCIATION OF REALTORS®. 

Total state existing-home sales, including single-family homes and condos, rose 8.3 percent to a seasonally adjusted annual rate of 5.14 million in the first quarter from 4.75 million in the fourth quarter, and are only 0.8 percent below a 5.18 million pace during the same period in 2010.

Also in the first quarter, the median existing single-family home price rose in 34 out of 153 metropolitan statistical areas from the first quarter of 2010, including four with double-digit increases; one was unchanged and 118 areas showed price declines. 

Lawrence Yun, NAR chief economist, said home prices are all over the map. “The reading of quarterly price data can be volatile because they are based on the types of homes that are sold during the quarter. When buyers principally purchase distressed properties in a given market, the recorded prices will be very low, which is what we’re seeing now in much of the country,” he said. “Annual price data provides a better guide about the direction of the market in those areas.” 

Distressed Sales Put Pressure on Prices 

The national median existing single-family home price was $158,700 in the first quarter, down 4.6 percent from $166,400 in the first quarter of 2010. The median is where half sold for more and half sold for less. Distressed homes typically sold at a discount of about 20 percent, accounted for 39 percent of first quarter sales, up from 36 percent a year earlier. 

Yun said lower priced homes have seen the best sales performance. “The biggest sales increase has been in the lower price ranges, which are popular with investors and cash buyers,” he said. “The preponderance of sales activity at the lower end is bringing down the median price, so what we’re seeing is the result of a change in the composition of home sales.” 

Although sales are slightly below a year ago, the volume of homes sold for $100,000 or less in the first quarter was 8.9 percent higher than the first quarter of 2010, creating a downward skew on the overall median price. 

The share of all-cash home purchases rose to 33 percent in the first quarter from 27 percent in the first quarter of 2010.

More Investors in the Market 

Investors accounted for 21 percent of first quarter transactions, up from 18 percent a year ago, while first-time buyers purchased 32 percent of homes, down from 42 percent in the first quarter of 2010 when a tax credit was in place. Repeat buyers accounted for a 47 percent market share in the first quarter, up from 40 percent a year earlier. 

“The rising sales trend in nearly all states is a part of the healing process to clear off inventory. Sales need to rise before prices can firm up,” Yun added. 

NAR President Ron Phipps said strong sales of distressed homes are exactly what the market needs. “The good news is foreclosures, which account for two-thirds of all distressed homes sold, are selling very quickly,” he said. “Short sales still take far too long to get lender approval, but it appears the inventory of distressed property is peaking and will be gradually declining next year. This means the market should slowly return to balance. We are encouraged that recent home buyers are having exceptionally low default rates.” 

According to Freddie Mac, the national commitment rate on a 30-year conventional fixed-rate mortgage averaged 4.85 percent in the first quarter, up from a record low 4.41 percent in the fourth quarter, but below the 5.00 percent average in the first quarter of 2010. 

A Closer Look at Price Trends 

In the condo sector, metro area condominium and cooperative prices – covering changes in 53 metro areas – showed the national median existing-condo price was $152,900 in the first quarter, down 10.4 percent from the first quarter of 2010. Eleven metros showed increases in the median condo price from a year ago, one was unchanged and 41 areas had declines. 

Regionally, existing-home sales in the Northeast increased 0.8 percent in the first quarter to a level of 800,000 but are 7.3 percent below the first quarter of 2010. The median existing single-family home price in the Northeast declined 5.0 percent to $234,100 in the first quarter from a year ago. 

Existing-home sales in the Midwest rose 7.9 percent in the first quarter to a pace of 1.09 million but are 5.0 percent below a year ago. The median existing single-family home price in the Midwest fell 5.3 percent to $124,400 in the first quarter from the same period in 2010. 

In the South, existing-home sales increased 8.5 percent in the first quarter to an annual rate of 1.96 million and are 2.8 percent higher than the first quarter of 2010. The median existing single-family home price in the South slipped 0.6 percent to $141,800 in the first quarter from a year earlier. 

Existing-home sales in the West jumped 13.5 percent in the first quarter to a level of 1.29 million and are 2.1 percent above a year ago. The median existing single-family home price in the West fell 4.7 percent to $197,400 in the first quarter from the first quarter of 2010. 

Source: NAR; Blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services, a proud member of Pilkerton Realtors, located in Nashville, Tennessee

Market Comment for Week of May 9, 2011…

MARKET COMMENT   Mortgage bond prices rose last week pushing mortgage interest rates lower. We were positive throughout most of the week as stocks struggled and oil prices fell. The ADP employment figure was lower than expected and weekly jobless claims were higher than expected which generally helped mortgage bonds. Unfortunately the payrolls component of the employment report Friday morning surprised to the upside and some of the earlier improvements were erased. Mortgage bonds ended the week better by about 1/4 of a discount point. 

The inflation data will take center stage this week. Any surprises to the upside on the consumer or producer sides will likely put upward pressure on rates. Foreign demand for the auctions this week will also be important. 

LOOKING AHEAD 

  • 3-year Treasury Note Auction; May 10; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Trade Data; May 11; Consensus Estimate $45.5b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
  • 10-year Treasury Note Auction; May 11; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Weekly Jobless Claims; May 12; Consensus Estimate 455k; Important. An indication of employment. Higher claims may result in lower rates.
  • Producer Price Index; May 12; Consensus Estimate Up 0.6%, Core up 0.4%; Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
  • Retail Sales; May 12; Consensus Estimate Up 0.3%; Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
  • 30-year Treasury Bond Auction; May 12; Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
  • Consumer Price Index; May 13; Consensus Estimate Up 0.6%, Core up 0.2%; Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
  • U of Michigan Consumer Sentiment; May 13; Consensus Estimate 69.5; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

CONSUMER PRICE INDEX  The Consumer Price Index is widely accepted as the most important measure of inflation. The CPI is a measure of prices at the consumer level for a fixed basket of goods and services. The National Statistics Office and the Bureau of Agricultural Statistics of the Department of Agriculture collect price data for the computation of the CPI. Since it is an index number, it compares the level of prices to a base period. By comparing the level of the index at two different points in time, analysts can determine how much prices have risen in that period. Unlike other measures of inflation, which only factor domestically produced goods; the CPI takes into account imported goods as well. This is important due to the ever-increasing reliance of the US economy upon imported goods. Analysts primarily focus on the core rate of the CPI which factors out the more volatile food and energy prices. Record debt levels continue to weigh heavily upon the financial markets. The Fed has tried to pump up the economy but in doing so has stoked inflation fears. 

Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services located in Nashville, Tennessee

Big Jump Expected in New U.S. Households

Millions of young adults are beginning to move out of their parents’ homes and create new households at the fastest rate since 2007. Some housing experts are predicting these young adults may provide a major jump to U.S. housing starts–possibly by more than 50 percent, even by next year–and increase housing consumption at a rate nearly double that of the past two years, Bloomberg News reports.

In 2011, between 750,000 and 1 million new households are expected to be created, says UBS Securities LLC’s Maury Harris and IHS Global Insight’s Patrick Newport. In the year ended March 2010, new households stood at 357,000–the lowest on record, according to U.S. Census data. The “depressed rate” in new household formation has continued to jeopardize the housing market’s recovery, experts say. 

But as the employment picture continues to improve, more young adults are leaving Mom and Dad’s house and making a new home for themselves. The “moving-back-in-with-Mom-and-Dad phenomenon” had caused a backlog of pent-up households, Charles Lieberman, chief investment officer with Advisors Capital Management LLC in Hasbrouck Heights, N.J., told Bloomberg News. “Improved economic conditions” will “enable these households to split up and resume living in their own residences.” 

Housing starts are expected to get a boost to about 648,000 this year and near 900,000 in 2012 (it stood at 586,800 last year), says Brad Hunter, chief economist and national director of consulting for Metrostudy. The increase in housing starts, he says, reflects a “shadow demand” for new homes among family members who have moved in together because of economic conditions. 

“The demographic component of housing demand is strong,” he says. “It’s just the economic and psychological components that are holding things back.”

Source: “New Households Form at Fastest Rate Since ’07 in Resurgent U.S.,” Bloomberg News (May 1, 2011); Blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services located in Nashville, Tennessee